Insurance market stagnant

• Penetration stands at 3% compared to 9% in Namibia and 6.5% in Mauritius

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• NBFIRA worried as total liabilities on premiums held by insurance brokers jump to P320m

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The overdue balance payables by some insurance brokers to insurers continue to have an adverse impact on the cash flow of insurers and inconvenience policy holders at claim stage.

According to the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) 2014 annual report in terms of the insurance Industry Act section 57 read with regulation 18 of the Insurance Industry Regulations, insurance brokers are liable to insurers for all premiums collected on insurers behalf up to a period of 60 days when such premiums become due for remittance over to insurers.

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At the time of writing the annual report, NBFIRA reports that the total liabilities on premiums held by insurance brokers was P320 million, which is double the balance held in the prior year (P147 million).

According to experts within the Insurance industry, brokers usually hold onto the premium funds to maximise returns for themselves before the same can be paid out to insurers. To counter this, some jurisdictions have passed regulations to the effect that premium is directly paid to an insurer and it is the insurer that pays out brokerage.

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According to the report, the insurance penetration rate in the country continues to be stagnant and relatively low at 3 percent of the Gross Domestic Product, compared with that of similar size economies such as Namibia and Mauritius, which have insurance penetration rates of 9% and 6.5% respectively. “ This low insurance penetration rate could be attributed to among other factors, a significant untapped insurance market, lack of innovative and differentiated insurance products and in some instances customer service delivery, which does not meet policyholder’s expectations, as well as limited consumer education.

The report, however, states that during the period the insurance market (Life & Non-Life) recorded a combined gross written premiums income of P3.74 billion, representing an increase of 1.6% from the prior year. The Life Insurance sector, according to the report, contributed 68% of this premium income representing P2.56 billion worth of the combined gross premium written, while the non-life sector contributed 32 % of the premium income representing P1.18 billion.

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Notably during the year under review, both life and Non-Life insurance sectors showed a stunted growth rate of only 1.25% compared to 19 %in the previous year, while a marginal growth of 2.3 % was also recorded for the non-life insurance sector. This marginal growth could be attributed to increased competition and hard economic pressure in the sector.

During the reporting year, according to the report, the insurance market ceded P525 million worth of premiums through reinsurance and co-insurance arrangements, with P22.2 million of general insurance business placed with local reinsurers. This resulted in a net income after tax of P608 million for the insurance market after meeting total incurred claims of P1.61 billion as compared to P1.49 billion in 2012. It is further reported that the gross written premium, which was distributed through insurance brokers stood at 41 %, representing P1.55 billion of premiums written through this distribution channel. As a result, the combined total generated revenue for insurance brokers during the period under review was P237 million earned through other revenue streams such as risk management related fees.